India’s largest airlines sees shares drop after earnings plunge 78%

India’s largest airline Indigo, which caused major disruption by canceling more than 2,500 flights last month, reported a 78% drop in profits in the December quarter and its shares fell more than 3%.

The company announced the results after the market closed on Thursday. opposite 5.8 billion rupees ($63 million) was paid in compensation following flight disruptions in December.

But the biggest impact on their earnings came from one-off wage and foreign exchange losses resulting from the implementation of the new labor law, which totaled approximately 20 billion rupees.

Lack of progress on the US-India trade deal has hurt investor confidence, contributed to capital outflows and weighed on the rupee, making it Asia’s worst-performing currency, down nearly 5% last year.

The currency was last trading at 91.52 and experts predict it will fall to 92 rupees per dollar by the end of March, which could cause further problems for forex-exposed businesses, including Indigo.

The airline’s March quarter is “expected to be weak” despite a 10% increase in available seat mileage (ASK), according to a report by Jefferies on Thursday. ASK is an important metric to measure passenger capacity.

The brokerage added that the airline will see a “moderation” in passenger revenue per available seat kilometer (PRASK) and increase in cost per available seat kilometer as the company “continues to add aircraft”.

Jefferies maintains a buy rating on the stock with a target price of 6,140 rupees per share.

Airlines in India are facing pressure on both the cost and revenue fronts as they generate almost 65% of their revenue from domestic travel, where passengers pay in Indian rupees but most of the costs are in dollars.

Mark Martin, founder and CEO of aviation consultancy firm Martin Consulting, said Indigo needs to add more capacity because they need to grow, but the next 6-12 months will be challenging as we expect the rupee to weaken further and fuel costs to rise.

He told CNBC that Indigo may need to fly more international routes to increase its dollar earnings. This was also hinted at in the company’s earnings release, with management saying the new seat additions would be shifted to international routes.

Labor reforms in India, which have expanded the scope and eligibility of social security benefits for employees, have also put pressure on Indigo’s earnings, which recognized one-time expenses of 9.7 billion rupees.

Indian government in November announced The reforms, which combine 29 separate labor laws into four comprehensive laws, walk a fine line between balancing business interests and employee welfare.

Under these rules, fixed-term or contract workers will now be entitled to benefits offered to permanent workers, including leave, healthcare and social security.

But that wasn’t the only change in government regulations that affected Indigo in the last quarter.

In November last year, the government introduced flight duty limit norms under which airlines were required to operate fewer flights late at night and crew rest period was increased from 36 hours to 48 hours.

In the first week of December, Indigo canceled thousands of flights, blaming changes to its pilot rest policy. Pieter Elbers, Indigo’s managing director, said early December was the “most challenging weeks” in Indigo’s history.

Last week, India’s Directorate General of Civil Aviation ordered the airline to pay a penalty of 222 million rupees in connection with operational disruptions that were part of one-time provisions.

Elbers, who came under fire after the disruption in December, said Indigo currently operates 2,100-2,200 flights per day, adding that the airline could comply with the government’s flight duty limit norms by February.

According to the statement, Indigo served 124 million customers in 2025, with an annual increase of 9%.